IMF Concludes the 2017 Article IV Consultation Mission to Jordan and Reaches Staff-Level Agreement on First Review Under the Extended Fund Facility

IMF News, May 16, 2017

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Published: May 16, 2017

Macroeconomic overview and outlook

Real GDP growth was 2 percent in 2016.
12-month inflation accelerated to 4.3 percent in March 2017 before receding to 3.5 percent in April.
The current account deficit rose to 9.3 percent of GDP in 2016.
Unemployment reached 15.8 percent in the second half of 2016, its highest level in more than a decade, with particular pressure on youth and women.
Recent indicators point to a rebound in exports, remittances, and tourism in the first few months of 2017.
Without significant improvements in regional conditions, real GDP is projected to grow by 2.3 percent in 2017.
Over the medium term, growth is projected to accelerate gradually, supported by structural reforms and fiscal consolidation.

Fiscal performance, public debt, and reserves

Combined public sector deficit declined from 7.1 percent of GDP in 2015 to 3.8 percent of GDP in 2016.
Improvement underpinned by strong performance of the National Electric Power Company (NEPCO) and in the primary balance of the central government; Water Authority of Jordan (WAJ) outcome was somewhat better-than-programmed.
Public debt-to-GDP ratio increased to 95.1 percent at end-2016.
With downward revisions to growth, public debt is now expected to decrease to 77 percent by 2022, one year later than originally envisaged.
International reserves were below program goals.

Structural reforms and policy recommendations

Welcome: authorities’ intention to continue removing gradually the exemptions for general sales tax and customs duties (excluding health and basic food items) over the years ahead.
Recommended tax and fiscal measures:
- Broaden the income tax base.
- Firmly tackle tax evasion.
- Expand and better target social assistance.
- Contain non-priority current expenditure.
Public investment and PPPs:
- Improve the efficiency of public investment, including strict adherence to the Public Private Partnership (PPP) framework, particularly in large sectors currently exempted, to enhance predictability and productivity and minimize fiscal risks.
Energy sector:
- Adoption of the new electricity tariff adjustment mechanism is an important step to safeguard NEPCO’s operational balance; critical that this mechanism operates as envisaged.
Public expenditure management:
- Authorities’ commitment to conduct a comprehensive public expenditure review in 2018 is welcome to help identify additional options to streamline expenditures across different public sector related entities.

Monetary policy and reserves management

Recent steps by the Central Bank of Jordan (CBJ) to raise its policy rates have helped balance preserving an adequate reserves buffer and confidence in the Jordanian dinar peg against providing supportive credit conditions to the economy.
CBJ readiness to increase its policy rates if pressure on reserves were to emerge, to keep the reserves buffer at its current comfortable level.

Competitiveness, business environment, and labor market

Need to step up implementation of legislation to enhance the business environment, including secured lending, bankruptcy, and inspections.
Strengthen financial inclusion and access to finance.
Low growth and high unemployment require active policies targeted at job creation and reducing informality.
Options to consider to reduce the cost of, and increase demand for, formal jobs:
- Explore a temporary (and fiscally neutral) cut in social security contributions.
- Explore a well-targeted employment tax credit.
A better framework to guide the setting of minimum wages could assist with reigniting employment and inclusive growth.

Program implementation and review

In spite of challenging conditions, the authorities made progress implementing important structural reforms, especially in energy and water sectors, and public financial and debt management.
Some delays observed in strengthening the business environment and in submitting legislation on deposit insurance and the insurance sector, and in implementing macro-critical structural fiscal reforms.
In light of program progress and authorities’ commitment, authorities and the IMF mission reached a staff-level agreement on the completion of the First Review under the EFF.
The IMF Executive Board is expected to consider the authorities’ request to complete this review by late June 2017.

IMF Press Release No. 17/176 — IMF Concludes the 2017 Article IV Consultation Mission to Jordan and Reaches Staff-Level Agreement on First Review Under the Extended Fund Facility, May 16, 2017.